UAW, Chrysler and Fiat reach concession deal

Chrysler LLC cleared another major obstacle to its survival Sunday when it reached a tentative deal on concessions with the United Auto Workers union, helping it move closer to inking a vital alliance with Italy’s Fiat Group SpA.

The troubled automaker is just days away from a Thursday U.S. government deadline to gain concessions from its unions and debtholders and link up with Fiat or face almost certain liquidation. White House economic adviser Larry Summers said Sunday the Obama administration is holding out hope that Chrysler can avoid bankruptcy court.

The UAW late Sunday called the concessions painful but said the deal takes advantage of the Obama administration giving Chrysler and its workers a second chance. The administration in February rejected Chrysler’s restructuring plan and gave the Michigan automaker until April 30 to make further cuts and arrange to take on Fiat as a partner.

The UAW agreement is seen as a key piece of pulling Chrysler’s plan together, and it’s noteworthy that the UAW said Fiat was involved in the deal.

“The provisional agreement provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U.S. Treasury Department,” Chrysler Vice President of Labor Relations Al Iacobelli said in a statement. “As a result, Chrysler LLC can continue to pursue a partnership with Fiat SpA.”

Separately, Canadian Auto Workers members on Sunday ratified a concessionary deal which CAW President Ken Lewenza said makes labor costs competitive with non-unionized Toyota in Canada. The two labor agreements now leave concessions from the holders of $6.9 billion in Chrysler secured debt and the alliance with Fiat as the remaining hurdles to Chrysler qualifying for additional government aid.

But debtholders, the company and the Treasury Department remain far apart on terms to swap equity in the company for much of the debt. A counteroffer to the debtholders from the Treasury is expected as early as Monday.

UAW Vice President General Holliefield said in a statement that UAW members and retirees are being asked to make extraordinary sacrifices to help Chrysler become viable.

“In order for the company to have a sustainable future, all stakeholders will have to show the same willingness to contribute to the common good that has been demonstrated repeatedly by our membership,” he said.

Chrysler has been living on $4 billion in U.S. government loans and is expected to get another $500 million. Without government help, it would have gone out of business around the first of the year. The government has said it would be willing to loan Chrysler up to another $6 billion if it is able to complete its restructuring and ink the deal with Fiat.

After rejecting the February plan, the government had said the UAW and Canadian Auto Workers unions must make further concessions, including the UAW taking equity in the company for at least half of a $10.6 billion payment into a union-run trust that will take over retiree health care costs starting next year.

Details of the agreement were not available late Sunday. It will be presented to local union officials from across the country on Monday, with voting to wrap up by Wednesday.

But the UAW says its deal “meets the requirements of U.S. Treasury Department loans to the company,” and includes changes to the health care trust.

“We recognize this has been a long ordeal for active and retired auto workers, and a time of great uncertainty,” UAW President Ron Gettelfinger said in a statement. “The patience, resolve and determination of UAW members in these difficult times is extraordinary, and has made it possible for us to reach the agreement we will present to our membership.”

Fiat CEO Sergio Marchionne was in the U.S. as talks continued for the automaker to take a 20 percent stake in Chrysler in exchange for its small-car technology.

Two people briefed on the Fiat negotiations said that if a debtholder deal can be reached, most of the Fiat deal has been finished and an announcement would come shortly after a debtholder agreement. The people didn’t want to be identified because the talks are private.

Fiat may build the small cars at Chrysler factories in the U.S., but they wouldn’t arrive until late 2010 or early 2011, according to industry analysts.

“We’re hopeful that the negotiations, which have been proceeding with great energy, are going to conclude successfully,” Summers said in an appearance on “Fox News Sunday.” “You never know _ with any negotiation _ until the very end. There are some issues that have been worked out. There are some issues that remain to be worked out, but it’s in everybody’s interest to see these negotiations succeed and we’re hopeful that they will.”